Similarly, only 52% of those surveyed said uncompensated costs arising from a force majeure event under the main contract should be allocated across JV parties, while 41% preferred that the loss should lie where it falls.
"Whatever approach is preferred on the allocation of liability for loss, this should be stipulated clearly in the JV contract so as to avoid any dispute or uncertainty," stressed Dr Dean Lewis, who specialises in international arbitration in the infrastructure and energy sectors at Pinsent Masons.
Method of risk-sharing
A number of potential solutions to sharing force majeure risks in JV arrangements were also highlighted in the survey responses. More than half of respondents (52%) said they believe that allocating the risks in direct proportionate to the share each party has in a JV arrangement is fair, while 30% of respondents said they believe expenses stemming from force majeure events should be treated as common expenses. Nearly a fifth of respondents (19%) said they would be open to adjusting participation shares to reflect any inequities caused by Covid-19, while 15% favoured the JV board determining the allocation of force majeure risk between JV parties.
A majority of respondents (almost 60%) said they want JV contracts in future to include termination clauses that could be triggered in the event of a force majeure event or Covid-19-related event causes prolonged suspension of the performance of the contract. However, those opposing this view believe including termination rights of this kind in JV contracts would potentially be in breach of the main contract with the employer. Currently, there are no JV contracts in the Hong Kong construction sector that allow termination or exclusion of a party due to force majeure or Covid-induced prolonged suspension, according to the survey findings.
Lewis said he was encouraged that just one survey respondent had said they had encountered disputes arising from the impact of Covid-19 on construction JVs in Hong Kong so far. However, he said it is likely that more disputes will arise the longer the pandemic continues.
Lewis was further encouraged by the fact almost half of those surveyed (48%) said they believe collaboration and consultation with JV partners will be more effective in resolving JV disputes arising from Covid-19. There were no firm conclusions, however, on the form of the dispute resolution process – whilst six favoured a more structured, multi-tiered dispute resolution mechanism, eight respondents preferred a less structured dispute resolution process. Nearly a third (30%) of respondents said they would like ability to appoint an expert to determine the outcome of a dispute.
Lewis said: "Covid-19 has had a massive impact on the construction industry and perhaps it is a good time for contractors to reflect on their existing JV structures, whether they are adequately equipped to deal with these unexpected circumstances and what could be done to better structure the JV arrangements to minimise these uncertainties."
A copy of the full survey report is available by contacting Bernard Ang of Pinsent Masons at [email protected]